Why Credit Woes in China Means Big Trouble for All

6/19/2013 11:41AM

China’s credit boom could well be unprecedented, and if it pops, it will likely be felt globally. Patrick Chovanec, Silvercrest Asset Management Group managing director and former professor at Tsinghua University in Beijing, joins MoneyBeat.

This transcript has been automatically generated and may not be 100% accurate.

... ay ay mm mm ... continue to grow when the ... surge in borrowing costs in the Middle Kingdom is putting on more pressure on already weakening economy Silvercrest had triple bonnet shut eye ... in ... the third time after time recently and I got ... your tournament is being a situation of ... overinvestment then investment ... and you can't paper over that to ... write this is not just a ... short-term blip in the market this is something which is part of a chronic issue you in the Chinese economy ... in China has been fueling ... growth in the past five years through a credit fueled investment boom ... and not only does that create an insatiable demand for credit that a lot of these investments are paying off and so there's a burden of rolling over that and that's that that those loans ... some of which are on the balance sheets of banks some of which are a lot of an increasing number of them are off balance sheet ... and so that sickly when this this is his investment instruments ... the banks have to cash them out ... it was a lot of stress and isn't the GED is a big cash crunch that takes place right and that's kind of overseeing right now ... personally so short-term market right in the fuel spike ... in rates and the lenders of eighteen eighteen the central bank personnel this right so for tonight giving it to them right that's right because what you know there's there's this insatiable demand for credit to feel this investment boom ... aam but the thing that they that the PBOC is worried about is there already ... credit growth is huge twenty two percent year-on-year already ... the broad money supply is growing by sixteen percent amid only in China with that feeling tight money right ... ALM so their reluctance to to ... insult them or because they're afraid of inflation not so much consumer inflation which seems to be ... relatively under control in China ... but say if you believe the official numbers but by said they're concerned about asset inflation in the form of that is that physically harm the form of the property market which is ... owed passively years has gone up enough ... how much it is pleasing to the fact that the economy there is is really weakening area ... we think the economy was booming as it had been over several years to get ... these by the official numbers ... you can kind of unintended paper over this stuff pretty easily but the economy is you know whatever they say is we think it's a little bit weaker than that ... I how much of this is the fact that the economy is really slowing down or the economy slowing down because the investment boom is buckling under its own way ... you know did did ... you have this does demand for credit um and you also had a dinner roll over ... all this and then there's simply not enough money to go around emotion blow out the money supply ... there's not enough money to go around to keep up that investment going to to continue to you ... to feel more and more investment every year ... that's not paying off and so that that's really the fundamental problem and you know look feminine economy that is now the world's second-largest today ... whatever happens is obviously going to have an impact ... on the stocks a lot of the other Asia Pacific ... Cup ... you know there been a lot of countries and want companies to have really read and a tiny investment ... aam you have Australia and Brazil selling Iron Ore Chile selling copper ... you have construction equipment companies like Macie or caterpillar ... fueling the construction boom in China ... you also have jury a lot of people don't realize that Germany a lot of the surplus that it's been running below the growth is to see is done by selling ... of machinery in infrastructure to China ... to feel that investment themselves ... in these these companies are in these countries to give me really hard hit ... as its